Sunday, December 19, 2010

Big trends

If you spend some time learning the lessons of markets, you begin to appreciate the simple wisdom of well-worn phrases like "The Trend is Your Friend."

Whether your approach is technical (what is everyone else doing?) or fundamental (what should this investment be worth if people came to their senses?), there is value in identifying trends and following them until evidence comes in that they have reversed themselves.

Trading out of a stock on its way up, or selling it at the same price on its way down, will make you the same amount of money. Imagining that you can call the turning point consistently is mostly self-delusion. Get on board with the big trends, and ride them until after they turn.

So what are we to make of this trend? The ratio between the price of gold and the value of bonds has been trending relentlessly in favor of gold since before the beginning of this century. The fine print, which is readable at the link but perhaps not on my embedded chart, says the market is anticipating inflation, as evidenced by the steeply rising trend.


Mark said...

Saw your comment on Captain Capitalism. I have been following this since 1980. (lost a fortune on Gold till recently)

You need to listen to Procol Harum especially the work "In held twas in I" on the Shine on Brightly (2nd) album and to see the best TV series ever (Nowhere Man, 1995)
I believe the silver is in the process of reverting to the mean unless the US gov't is taken back by the people.
We (hopefully) are not the Germans of 1938 or the Weimar Republic.
If the Republicans betray us now, expect violence in America a la Jimmy Carter time when the interest rate hit 21% and which is way below the threshold of the Weimar regime.

Mark said...

Notes and addendums to previous comment.
Keith Reid who writes all the words for Procul Harum and plays no instrument nor appears on stage is extremely profound.

There were no Tea Parties in Jimmy Carter time, no one was aware of ACORN or Alinsky as they are now.

Obama is a successor to Jimmy Carter who is solely responsible for the existence of the Iranian regime.

Halfwise said...

Thanks for stopping by and leaving a comment or two. I appreciate you taking the time.

Procul Harum -- I have their vinyl album with the Edmonton Symphony Orchestra that has In Held 'Twas In I, and Conquistador. Great band, decent recording. And if you want a first-class cover of Whiter Shade of Pale, check out Annie Lennox on her Medusa album.

To the markets and the economy. It seems to me that systems that involve chaos, and that last for a long time, have feedback loops and cycles that correct the excesses and revert performance to the mean. We see it in nature with coyote and rabbit populations here on the prairies. We see it in organizations, we see it in weather, we see it in the stock market.

When someone interferes with the feedback mechanism, he doesn't cure anything, he just postpones and intensifies the inevitable.

Markets and economies go in waves, as the Elliott Wave guys will remind you. The social mood swung to acceptance of indebtedness, then to outright encouragement of indebtedness, from the apartment dweller to the federal government. When excessive indebtedness demanded to be repaid, the solution was...MORE INDEBTEDNESS! It would be like a college student trying to drink himself sober. Unbelievable. The mood will change, but it will take some time.

As for silver, it does not have to return to the 15:1 ratio for silver miners to do well. At today's prices, they are undervalued.

Invest resourcefully. //Halfwise